Aveng -- Statement to shareholders

Tuesday 4th November, 2014
Business update
In line with the general economic conditions experienced in the Group\"s key markets of South Africa and Australia, Aveng continues to experience difficult trading conditions. In a continuation of the trends evidenced in the preceding financial year, the South African market continues to be challenging due to the low levels of infrastructure-related spend, the impact of lower mining activities and labour disruptions. Trading conditions in Australia remain difficult with the general social and infrastructure-related projects not yet compensating for the reduced mining infrastructure spend. Despite these market challenges, the Mining and Manufacturing businesses yet again delivered solid performances, whilst the execution of the recovery and stabilisation plan continued to progress well.

Construction and Engineering - Australasia and Asia: The completion of multi-year major mining and infrastructure contracts will result in, as anticipated, lower revenue for the Australian business. However, McConnell Dowell is pursuing opportunities in the general infrastructure environment, most notably rail, roads, pipeline and oil and gas opportunities. South-East Asia and New Zealand continue to perform well. As previously reported, McConnell Dowell continues to close-out the remedial work and undertake demobilisation actions associated with the Gold Coast Rapid Transit (\"Gold Coast\") contract. The process to finalise and resolve claims with the affected counterparties has been intensified. The arbitration process for the Queensland Curtis Liquid Natural Gas (\"QCLNG\") contract is progressing in line with the agreed timelines with no material change in the status thereof.

It is expected that the commercial negotiations will be protracted, and thus the final outcome remains an uncertain and material risk to the Group.
Construction and Engineering - South Africa and rest of Africa: This segment remains constrained due to the lack of investment in infrastructure. Whilst the recovery and stabilisation process within Aveng Grinaker-LTA is progressing, the pace thereof is slower than planned. The completion of legacy contracts continues to negatively impact current performance. Good progress is being made on the Nacala Rail Link, the Mall of the South and the Sasol Corporate Head Office contracts. Given the soft trading conditions, it is pleasing to note that Aveng Grinaker-LTA was able to increase its order book by 15% from 30 June 2014 to 30 September 2014.

Mining: The mining business continues to deliver good results considering the general downturn in the mining and commodity sector, assisted by efficiency initiatives to sustain operating margins. Aveng Moolmans contracts' have generally performed well, with the Nkomati Nickel Mine contract commencing operations in the first quarter of the financial year. The Chuquicamata Copper Mine in Chile continues to receive attention at the highest level to resolve operational issues, and settle outstanding claims.

Manufacturing and Processing: Aveng Manufacturing is performing well due to strong demand for concrete products, rail construction and maintenance services in Southern Africa. This operating group will continue to benefit from increased rail opportunities across Southern Africa. Aveng Steel was negatively impacted by the steel sector labour disruptions and challenging market conditions, with no improvement in demand or prices expected to materialise in the financial year.

The recovery and stabilisation plan implemented by the Board during the previous financial year is progressing, most notably relating to actions to restore liquidity. The repayment of advance payments associated with the QCLNG contract, the completion activities on the Gold Coast contract, the second payment to the Competition Commission in terms of the administrative levy settlement and working capital requirements associated with major contracts continue to affect cash flow.

In line with the Board\"s plan to improve liquidity over the short term, the Group has implemented the following:
*Successfully placed a R2 billion senior unsecured convertible bond, listed on the Johannesburg Stock Exchange (\"JSE\"). Authority was granted at the General Meeting on 19 September 2014 to equity-settle the bond conversion.
*Following the announcement on 19 September 2014, the sale and resulting receipt of the associated consideration of Electrix has further strengthened Aveng's liquidity position by approximately R1,4 billion.
*The process of disposing of the majority of the Group's property portfolio in South Africa is well advanced. The transaction is expected to be finalised in the second half of the financial year following the required regulatory approvals

The above actions will enable Aveng to concurrently pursue contract claims to a positive conclusion whilst taking advantage of growth opportunities and combined with current facilities, will assist in securing the liquidity of the Group.

Order book: the Group\"s two year order book (excluding Electrix) decreased by 2% from R37,2 billion (R40,9 billion including Electrix) at 30 June 2014, to R36,5 billion (excluding Electrix) at 30 September 2014. The Construction and Engineering: Australasia and Asia operating segment's order book decreased by 9% in Australian dollar terms from AUD2,0 billion (excluding Electrix) to AUD1,8 billion. Construction and Engineering: South Africa and rest of Africa's order book increased by 13% from June 2014 to R8,3 billion. The Mining order book increased by 13% to R9,7 billion with South Africa gaining significantly relative to non-South African operations.

Integrated report
The Group issued its 2014 Annual Integrated Report to stakeholders on 22 September 2014. The consolidated annual financial statements and Integrated Report have been published on the Group website, www.aveng.co.za.

The interim results for the six months to 31 December 2014 will be released on SENS on 17 February 2015 when the Group will be updating the market on its business in a presentation in Johannesburg on the same day, and in Cape Town on 18 February 2014.

The presentation will be available for all stakeholders on the Group\"s website, www.aveng.co.za